Highlights of Idea-Vodafone merger: How it will change the telecom sector

The board of Idea Cellular approved the merger of Vodafone India Ltd and
its wholly-owned arm Vodafone Mobile Services, making the new entiy the
biggest telecom operator in India.

The board of Idea Cellular today approved the merger with Vodafone India Ltd and its wholly-owned arm Vodafone Mobile Services, making the new entity the biggest telecom operator in India.

The combined entity emerges as the market leader in terms of wireless subscribers, taking on rivals such as Airtel and Reliance Jio.

The board of directors of Idea Cellular at its meeting held today approved the "scheme of amalgamation of Vodafone India Limited (VIL) and its wholly owned subsidiary Vodafone Mobile Services Limited (VMSL) with the company", Idea said in a regulatory filing.

The transaction is subject to necessary approvals from concerned authorities, including SEBI, Department of Telecom, RBI etc. "Upon the amalgamation becoming effective, the entire business of VIL and VMSL, excluding VILs investment in Indus Towers Limited, its international network assets and information technology platforms, will vest in the company," the filing said.

According to the filing, the turnover of Vodafone India is Rs 5,025 crore and of VMSL is 40,378 crore. Idea Cellulars turnover is Rs 36,000 crore. The net worth of VIL is 12,855 crore, VMSLs 3,737 crore and of Idea Cellular is Rs 24,296 crore.

As this deal would now change the entire telecom landscape of the country; here is all the information you need to know about the merger;

The merger of Vodafone, the country's second-largest cellphone network operator, with the Aditya Birla Group firm -- India's third-largest cellular operator would create a company with over 395 million users and form one of the largest telecom companies in the world.

Kumar Mangalam Birla will be the new chairman of the merged entity, while Vodafone will appoint the CFO.

"For Idea shareholders and lenders who have supported us thus far, this transaction is highly accretive, and Idea and Vodafone will together create a very valuable company given our complementary strength," said Kumar Mangalam Birla, Chairman, Aditya Birla Group.

With 32.84 per cent, Bharti Airtel has the maximum market share, but the combined entity of Vodafone India and Idea will command 43 per cent, say analysts.

According to the deal, Vodafone would acquire 45 per cent of the combined entity while promoters of Idea would sell 26 per cent stake. After the announcement, the shares of Idea Cellular soared over 14 per cent on Monday.

It has also been mentioned in the filing that if after four years, the combined shareholdings of Vodafone and the Aditya Birla Group would not be equal then Vodafone would sell down shares in the combined company to equalise its shareholding to that of the Aditya Birla Group over the following five-year period.

Idea Cellular is already listed on BSE and NSE, while Vodafone India is expected to list on bourses in March 2017 and raise about $2-$3 billion.

Vodafone India has 17 circles with 4G capability, covering 90 per cent of the company's total revenues and 94 per cent of mobile data revenues. Also, it has the the largest voice and data traffic usage within the Vodafone Group.

Idea is trying to attract premium 4G customers, having launched services in seven circles so far. Idea's wireless broadband network is spread across 17 circles with a population of over 880 million, with 50 per cent of this population already covered.

Top five service providers have over 80 per cent of the market share of the total broadband subscribers. The merged entity would become the leader in the category, overtaking Bharti and Reliance Jio.

Since its entry in India in 2007, Vodafone has become number two operator in the country, but its journey has been tumultuous as it is locked in a legal battle with the government over a USD 2 billion retrospective tax claim over its acquisition of Vodafone India from Hutchison in 2007.

It had written down value of business by 5 billion euro, late last year. The British firm has pumped in more than USD 7 billion into the India unit.

Telecom operator Vodafone made a payment of over Rs 10,100 crore to the Department of Telecom towards the purchase of the airwaves last year. The company paid over Rs 10,100 crore through deferred payment and also submitted a financial bank guarantee of Rs 1,900 crore. The firm made the highest amount of bids, leaving behind its rivals Bharti Airtel and Reliance Jio and Idea Cellular. The country's second-largest telecom operator had made bids worth Rs 20,280 crore to acquire spectrum in all its key telecom circles across 1800, 2100 and 2500 MHz bands.

Prior to the merger, it was speculated that the combined entity will generate a revenue share of around 40 per cent and a subscriber base of over 380 million, according to India Ratings and Research.